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You have gathered this information on a firm: $516,000 sales, $11,600 cash dividends, $308,000 cost of goods sold, $23,200 administrative expense, $23,200 depreciation expense, $46,400 interest expense, $11,600 purchase of productive equipment, no changes in working capital, and a tax rate of 21%. What is the free cash flow?

Multiple Choice
A. $91,008
B. $142,208
C. $149,008
D. $159,008

1 Answer

5 votes

The free cash flow for the firm is $92,000. The free cash flow can be calculated by subtracting the cash outflows from the cash inflows. In this case, the cash inflows include the sales revenue of $516,000, while the cash outflows include the cash dividends of $11,600.

The cost of goods sold of $308,000, the administrative expense of $23,200, the depreciation expense of $23,200, the interest expense of $46,400, and the purchase of productive equipment of $11,600.

To calculate the free cash flow, we need to subtract the cash outflows from the cash inflows:

Sales revenue: $516,000
Cash dividends: -$11,600
Cost of goods sold: -$308,000
Administrative expense: -$23,200
Depreciation expense: -$23,200
Interest expense: -$46,400
Purchase of productive equipment: -$11,600

Free cash flow = Sales revenue - Cash dividends - Cost of goods sold - Administrative expense - Depreciation expense - Interest expense - Purchase of productive equipment

Free cash flow = $516,000 - $11,600 - $308,000 - $23,200 - $23,200 - $46,400 - $11,600

Free cash flow = $92,000

Therefore, the free cash flow for the firm is $92,000.

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